Posted by: Peter J. Cunningham | June 23, 2010

Proactive Collections

We’ve all experienced it. You notice large invoice amount on your aged trial balance that is seriously past due. You call the customer, identify yourself and your company and are suddenly greeted with an absolute litany of expletives.

How could you have avoided this scenario?

Know your customer and research their file before you make the phone call.

Let’s start over

A review of the account shows that this customer has always paid on time.  Pull a copy of the invoice.  Are there products or services that have been a concern in the past? A review indicates that they seldom make claims for credits and when they do, they are always legitimate.

Unfortunately the customer notes do not provide any reason for the past due status.  Now What?

Before you contact the customer make internal enquiries.  You may think it may be a lot of legwork but remember your goal is not only to collect the accounts receivable, but to maintain an excellent relationship with the customer.  Check with Customer Service and then the Sales Representative and make sure you document your enquiries in the customer files.

You have exhausted all internal avenues but are still no clearer to an answer.

Now What?

It’s time to contact the customer.

Greet the customer as you always do.

When you ask about the invoice, do not mention it is past due… Tell the customer there is an open invoice from ____ and that the payment falls out of their regular payment habit.

Ask them if it is possible they may not have received the invoice and if so, you would be happy to forward it by e-mail or fax.

If the invoice is a concern or disputed invoice and the customer is upset, let Them Vent.  When they have calmed down, ask for details and document them.  It is extremely important that you both document the concern and give the customer a date and time when you will get back to them with answers.  On the deadline date, call the customer even if you don’t have a resolution.  Let them know that although you don’t have a resolution, that you are still working on the concern.  Give them details of your investigation to that point and again give a deadline date that you will contact him and again follow up.

Remember to focus on the concern, not the situation

Keeping notes is also important because some debtors dispute invoices to delay payment or get a reduced price.  When the customer notes indicate a constant flow of disputes, it may be time to address the account with senior management.

Posted by: Peter J. Cunningham | June 10, 2010

The Delinquent Account; Before You Send It to a Collection Agency….

You may be satisfied with accounts paying beyond your net 30 day terms. You feel comfortable thinking that 60 days is the norm in your industry and that all your accounts seem to get paid without you having to call them. Then you notice an account for a substantial balance beyond that 60 day period and heading over 90 days. It appears you may have to send the account to a third party for collection or to a lawyer. Where do you start?
The first step is to determine the reason for the delinquent balance. There are usually three major reasons why an account is past due;
• The customer wants you to work for your money
• There is a dispute or credit note request from the customer
• The customer does not have the money
In regards to the customer that wants to make you work for your money, you need to put down firm ground rules regarding when you expect payment. If the homework had been done with a proper credit investigation from a properly completed credit application, you would have discovered this customer type immediately and taken proper precautions. At 90 days or greater however, you need to let this customer know that you want to get paid and that you expect payment immediately. Call the decision-maker at the delinquent company and follow up with an e-mail, fax, letter or all three. If you do not get any contact or response from the customer, you may want to send a letter of settlement for two reasons; one it’s better to get 90% of something rather than 100% of nothing. The second reason is that should you end up having to sue the account; the courts will look more favourably on your argument since you tried to avoid a court date with the debtor by compromising.
In the case of a dispute or credit note, you should again review the customer notes and file. If the account is a customer who constantly requests credit notes for insignificant reasons, you may want to take a firmer stance. You may know of some companies who lowball a quote on a project and then try to increase their gross profit by constantly seeking credit notes from their suppliers or delaying payments to them. If the dispute is legitimate, it pays to solve it as quickly as possible in terms of retaining the customer and establishing trust and loyalty.
The final scenario is the account that simply does not have the money to pay you. This is the most concerning scenario of the three. Once again, it is important to review the customer file. Does the customer have slow times during the year? Can you implement a payment plan? Remember that if you do implement a payment plan for the customer that the past due balance must decrease and not maintain the status quo. Perhaps if this cash flow shortage is a constant yearly concern you may want to reduce the customer’s credit line. This will not only reduce your exposure to a possible delinquency, but it will force the customer to forecast his cash flow better.
To sum up, you can probably avoid sending an account to a third party with a good collection policy, prompt follow up on past due invoices and documentation of all payment plans, disputes and overall correspondence to the debtor. Usually debtors will respond to a common sense argument when you have the documentation to back it up. Should you end up having to take the account to court, it’s just like in the court TV shows; the one with the best documentation usually wins the case. In some instances the court may award costs and past due interest. The most important thing is to follow through with your demands for payment. If you tell the customer you will be sending the account to a collection agency in 10 days, then do it; if not, the customer will not take you seriously. If you are not prepared to send the account to a collection agency, then don’t mention it in your correspondence. Remember to always get confirmation of your correspondence to the debtor with instruments such as proof of fax or a courier receipt.

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Posted by: Peter J. Cunningham | June 7, 2010

Your Best Customer

The Dream Customer
In credit and collections, we all know who the difficult customers are, just as the sales department knows who their highest sales customers are. The large buyers are noticed because sales is the objective of the sales department; protecting against bad debt losses is the objective of the credit department and that’s why we know who the risk customers are.
What if the sales and credit departments worked together and developed a model customer? Can you imagine the reduction in confusion and poor relations if the credit department helped to identify profitable customers and brought them to the forefront? What if the credit analyst, while reviewing a credit application, discovered that the subject company was a low risk customer capable of greater sales than the sales rep expected and communicated it to sales?
What would be the characteristics of that model customer?
To make the sales department drool, the ideal customer would purchase regularly and purchase at a reasonable gross profit. Loyalty would probably be high on the list; we all have had customers who let our salespeople know if a competitor has been visiting.
To make the credit department achieve that form of Nirvana, the ideal customer would pay consistently and on time. The ideal customer will let you know if there is a concern on the invoice rather than waiting for your call. There are even customers who call to advise of a larger credit amount than was warranted or that they are waiting for a bill for a product or a service.
Imagine if the majority of your customer base was made up of the ideal customer.
It’s not a fallacy. It is a given that during this current economic recovery, we do need to get sales when we can.  However if we take the time to review our customer base for the customers who come closest to the ideal and treat them just a little more tenderly, we just might develop the Nirvana we all want.
The key is a credit policy that is created with input from the sales department, endorsed by upper management and made public. Communication between the Sales and Credit Department is also important as is a good note system in which positive actions of a model customer are noted and communicated just as frequently as slow payments, disagreements or disputes.
When we know who our model customers are, we can take the extra effort to make them feel appreciated. They’ll buy more, pay faster and increase your company’s profitability.

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Posted by: Peter J. Cunningham | June 1, 2010

Telephone Collections- How Prepared Are You?

The collection call can make or break a customer relationship. A successful collection call will help to resolve the reason for non-payment, retain the customer’s goodwill and enhance the customer relationship. For this reason,it is important to be mentally prepared; let the customer feel a smile over the phone.

In terms of mental preparation you should keep one thing in mind; never argue with a customer. You will never win. That’s why, as previously mentioned, it’s important to prepare your customer’s file and also to prepare yourself mentally.
What is the reason for your call and how would you consider the call to be a success after the call has ended? Be aware of your voice and the exterior noises. When the call needs to be sensitive in nature, try to find a quiet place to make the call. Remember that the most predominant sense when using the phone is the sense of hearing; the customer will hear you typing, background noises or, one of my previous bad habits, clicking your pen. In terms of using your voice, remember you want to sound professional without being wimpy.  I have heard many collectors finish a statement to a customer with incorrect intonation; they make a statement seem like a question. Here’s a good example,

“Hello this is Mark calling from Big Bulb Ornament Company. I was reviewing your account and noticed an open item.”

There is absolutely nothing wrong with this statement until we consider intonation; making the statement sound like a question.

Hello this is Mark calling from Big Bulb Ornament Company? I was reviewing your account and noticed an open item?”

Mark probably doesn’t realize it, but he is making his statement sound like a question by emphasizing the tone in the last part of the sentences.

It’s almost like saying, “Hi this is Mark will you accept my call? I notice there’s an open balance will you accept it’s legitimacy?

Remember that the tone, volume and background noises are all important factors to consider when making a successful collection call.

Many telemarketers have a mirror by their terminals and before they make a call into the phone, they look into the mirror and smile; it gives them a more pleasant manner when dealing with the customer. The customer can actually feel the smile over the phone.

Want to know more about JP Cunningham Receivable Services? Why not visit us at http://www.jpcunningham.ca or sign up for our monthly newsletter at info@jpcunningham.ca

“A volunteer is worth 10 pressed men”.  Have you ever heard of that expression?  It doesn’t have to do with department store leisure suits or shrewd newspaper professionals.  The term “pressed men” refers to the unlucky men who had the misfortune of being grabbed by press gangs against their will and forced to sail with the naval vessels of the day.   Press gangs gained renown in the 19th century and prior.  They usually operated along the coastal towns of the day and were used to fill vacant spots on sailing vessels. Their victims were abducted without notice forced to do menial labor and would often be away from their families months or even years at a time.

What does this have to do with today’s blog? It has to do with motivation.

A great example of positive motivation can be found through the experiences of the late Andrew Carnegie.  Carnegie was a renowned steel magnate and philanthropist who came from meager beginnings to become one of the wealthiest men in America.  The story goes that Carnegie was losing money through one of his ventures in South America.  Looking around for a way to stop the bleeding, he sent one of his young and promising executives to rectify the situation.  The executive made every possible effort to stem the course of the continuing losses but to no avail; the mine was closed and he had to return to the New York offices in shame.

When meeting with Carnegie, the executive expected to lose his job, his professional reputation not to mention Carnegie’s displeasure at the outcome.

The result of the meeting had quite a different result however.

Carnegie simply told the young executive, “It is good to have you back.  I know that if it had not been for your efforts, we would have lost much more money than we did.”

Carnegie knew that the executive had used his best efforts and that most importantly, Carnegie had gained the executive’s loyalty to a greater degree.  When faced with such a magnanimous gesture from his employer, it would be easy to continue on with nothing but exceptional effort.

How do you motivate your staff?

Want to know more about JP Cunningham Receivable Services? Why not visit us at http://www.jpcunningham.ca or sign up for our monthly newsletter at info@jpcunningham.ca

Posted by: Peter J. Cunningham | May 21, 2010

Holding Orders-NOT The Best Collection Method

Good credit management is not about withholding shipments.
As one of my mentors used to say, “Holding an order is the easiest way to get paid, but it’s the worst way to maintain customer goodwill.”
Don’t get me wrong, there are customers who simply cannot pay. With customers who need an invoice fixed or want to make you work for your money however, it makes sense to establish good customer relations by working with them. The key is knowing your customer and the reason why they are withholding payment. Quite obviously, communication between your coworkers and the customer is the key.
Excellent communication between your internal customers (coworkers) and the customer can help to resolve a concern invoice before it gets too far beyond regular terms. Have you ever considered your collection call to be a positive? What if you discover an invoice will be credited? Why not use it as an occasion to contact the customer. Chances are he or she will probably will know about the credit but will appreciate your call to ensure that the credit note is in process and when it will appear on his statement.
If you constantly hold invoices now and ask questions later, do you think your customer will willingly communicate about concerns or payments? Good communication builds customer relationships. When a customer relationship is built on good communication, trust, loyalty and mutual respect, the possibility exists that your customer will want to purchase from you more often and pay you first before any other supplier.

Want to know more about JP Cunningham Receivable Services? Why not visit us at http://www.jpcunningham.ca or sign up for our monthly newsletter at info@jpcunningham.ca

Posted by: Peter J. Cunningham | May 9, 2010

Customers and Economics

You all know about how  I stress the importance of knowing your customers through a good credit application, credit investigation and, of course, customer notes.

Have you ever stopped to consider  the importance of your customer base in regards to the full capacity of your company?

Lets say that your company has achieved peak capacity and there is absolutely no way to increase sales.  The question then becomes, “how can I raise profits when the company is at full capacity?”

Obviously pricing; however, what about generating faster cash flow from your customer base or, more specifically, your accounts receivable.  Is your customer base made up of accounts that pay at 60 or 90 days?  For a company that has receivables of about $20,000. per month, the increase in reducing the Day Sales Outstanding from of 60 to 45 days would generate over $5,000.per month.

Now consider that influx of cash during a  year of operations.

Have you turned down business because of operating at full capacity even though  the prospect is a strong and stable company?

Want to know more about JP Cunningham Receivable Services? Why not visit us at http://www.jpcunningham.ca or sign up for our monthly newsletter at info@jpcunningham.ca

Posted by: Peter J. Cunningham | May 1, 2010

Customer Relations Through Collections

It always fascinates me how many companies consider their Credit and Collections Department to be the Sales Prevention Division of the company.
The sales department, quite obviously is the arm of the company who should be the utmost contact with your customers.
Consider however the relationships which can be initiated between the Credit department and your customers.
A case in point is the discovery of a customer dispute on an outstanding invoice; a strong Credit Department will discover concern invoices promptly and rectify them as quickly as possible.
A quick and proactive response to concern invoices retains customers and strengthens company relations with them.
Perhaps a better tag for the Credit Department could be, “Sales Retention”.

Posted by: Peter J. Cunningham | April 20, 2010

Credit Application

The Credit Application provides  information on how the prospect or company is set up, information on the owner(s), and, when properly endorsed, can be a legal and binding contract that protects your company’s terms and conditions.

When is the best time to get a credit application? The answer is before you end up having to sue an account for non-payment.  Since you may never know which accounts will go bad, it’s a good idea to get a credit application every time.

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